Facing political fallout from this Administration's reckless spending spree, President Obama will reportedly use the State of the Union Address to focus on debt, deficits and spending. Despite efforts to spin the facts or blame the preceding Administration, a comparison of the fiscal situation when the Obama Administration took office reveals the truth. The nation's historic debt and record deficits are a direct result of the President's big-spending agenda.
Debt: The President's spending policies have drastically increased the national debt. Since taking office just one year ago, the President has increased the public debt by $1.47 trillion or 23 percent, from $6.3 trillion to $7.78 trillion.
Under the Administrations' budget, public debt will triple, jumping to $17.5 trillion dollars by 2019. Before Obama's budget and "stimulus" were enacted, CBO estimated that the public debt in 2019 would be $9.34 trillion-or $8 trillion less than it is now projected to be under Obama. In addition, while the President prepares to tout his commitment to fiscal responsibility, he is encouraging Congress to pass a $1.9 trillion increase in the national debt limit, allowing the government to keep borrowing in order to keep on spending. Today, the cost of the national debt is $39,870 for every woman, man, and child in the U.S.
Runaway Spending: The record amounts of debt are a direct result of huge spending increases by the Democrats in Congress and the White House. In one year controlling the White House and Congress, Democrats increased the annual deficit by 308 percent, from $458 billion to $1.4 trillion. A quick review of Democrat's spending increases in 2009 shows why the deficit exploded. In 2009 alone, House Democrats passed $787 billion in "stimulus" spending (which will also add $347 billion in interest), two omnibus spending bills totaling more than $855 billion, and increased non-defense spending by 12 percent. Faced with declining revenues, the President has chosen the least responsible option by increasing spending and deficits rather than lowering federal expenditures.
Deficits: Another result of Obama's runaway spending is record breaking deficits for the next decade and beyond. Since Obama was inaugurated, the U.S. has had an average monthly deficit of $122.6 billion. By comparison, from the year 2000 until 2008, the average annual deficit was $196 billion. Unfortunately, the trend of increased federal deficits will not come to an end under the President's budget. According to the President's own estimates, his budget and spending plan will cause deficits to average $905 billion for each of the next ten years. Budget shortfalls incurred by the government fuel the rise in the nation's debt because the government is forced to borrow money to meet the shortfall. In 2009, the budget deficit was $1.4 trillion-the first time in history the deficit exceeded $1 trillion and the first time the deficit exceeded 10 percent of gross domestic product (GDP) since World War II.
Why Spending and Debt Hurt the Economy: When federal spending exceeds revenues the federal government usually does one of three things: increase taxes, print new money, or borrow money. Each of these possibilities is problematic and present different threats to the economy at large-especially during times of economic turmoil.
Increasing taxes-which the Obama Administration supports-removes capital from the nation's job creators and puts it into the coffers of the government. The tax increases which Obama has endorsed would disproportionately punish small businesses, which make up more than 99.7 percent of all employer firms and employ more than half of all private sector workers. According to the Small Business Administration, small businesses have generated 64 percent of net new jobs over the past 15 years. The national energy tax supported by the Administration would hit every American with thousands of dollars in new taxes. With unemployment at ten percent, now is exactly the wrong time to increase taxes.
To pay for massive federal spending and deficits, some might advocate monetizing the shortfall by having the Treasury print more money. Increasing the supply of money, however, necessarily devalues the dollar and hastens inflation. Inflation acts as a tax and adversely effects individuals and families by decreasing the purchasing power of their money. This would be especially harmful to the elderly, single-parent families, or other individuals on a fixed income.
Finally, the federal government can borrow money from foreign countries through the sale of debt instruments, which is the most commonly used method for addressing budget deficits. There are a number of concerns with a rapidly increasing national debt. First, money borrowed by the federal government must be paid back by future generations with interest. For instance, the Department of Treasury predicts that the cost of interest on U.S. debt will be $465 billion in FY 2010 alone. The enormous burden of the interest costs on our debt takes money out of the economy for future generations and diverts funds from being used for other, more pressing priorities. In addition, the U.S. dependence on borrowing money to fund our budget deficits, places our nation in the precarious situation of being beholden to foreign nations, like China, to finance our federal spending. High national debt can also diminish confidence in an economy. As President Obama said in November, 2009, "I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."
Rhetoric Doesn't Match Reality: During his State of the Union Address, the President will likely try to perform an about-face, ignore his record, and attempt to convince the American people that he is committed to addressing spending, debt, and deficits. Unfortunately, the Presidents record reveals a far different reality.